Ineos Is C&EN’s Chemical Company Of The Year For 2014

Ineos was born inconspicuously in 1998. That’s when founder Jim Ratcliffe plunked down $120 million to buy the petrochemical business of British specialty chemical maker Inspec. The purchase gave Ineos an ethylene oxide and glycol plant in Antwerp, Belgium, as well as its name, derived from Inspec Ethylene Oxide Specialties.

Ineos went on to acquire the leftovers of many other firms that no longer wanted to be weighed down by basic chemicals. At the turn of the millennium, such commodity businesses had gone out of fashion, and as head of a private company, Ratcliffe could buy them up without having to worry about the shareholder opprobrium a public company might face.

By 2005, Ineos had grown to about $10 billion in annual sales through purchases of businesses from Dow Chemical, Degussa, and ICI. A single acquisition that year—of BP’s Innovene polyolefins business—added another $18 billion to Ineos’s revenues.

In 2013, Ineos had $27 billion in annual chemical sales, making it the 10th-largest chemical company in the world. But more than just the rapidity of its growth, it is the firm’s counterintuitive strategy and the boldness of its founder that make Ineos C&EN’s Company of the Year for 2014.

Last year saw Ineos consummate two of its most noteworthy deals, both in businesses other firms are eager to exit. One was the formation of the $3.5 billion-per-year polyvinyl chloride joint venture Inovyn through the combination of Ineos’s PVC business, which was already Europe’s largest, and Solvay’s PVC unit. Ineos has an option to buy out Solvay’s share after three years.

The company exercised a similar buyout option to complete its other major 2014 deal, the acquisition of BASF’s stake in the Styrolution polystyrene joint venture. The purchase, for $1.3 billion, gave Ineos full ownership of the world’s largest styrene and polystyrene maker, with $7 billion in annual sales.

Growth isn’t the only way Ineos distinguished itself in 2014. With Ratcliffe as lead insurrectionist, the company is attempting to foment nothing less than a revolution in how Europe makes chemicals—by importing the shale gas phenomena from the U.S.

The saga of Ineos’s complex in Grangemouth, Scotland, exemplifies how high the stakes have become for Europe’s chemical sector. Like other European petrochemical facilities, the site struggles to compete against facilities in the U.S. and the Middle East that enjoy access to cheap and plentiful raw materials.

Moreover, extraction of natural gas from the North Sea, where Ineos gets the ethane feedstock it needs to run Grangemouth, had declined by 60% over the past decade. The site, Ineos claimed, was losing $16 million a month.

Ratcliffe floated a plan to resuscitate it. The centerpiece was spending $500 million to build a terminal that would accept tankers of ethane from the shale-gas-rich U.S.

He also asked for hefty concessions from Grangemouth’s workers, including three-year pay freezes and pension cuts. Unite, the labor union representing the workers, accused Ineos of lying about the site’s profitability and threatened a strike. When Ineos idled the facility, Unite regional secretary Pat Rafferty accused Ineos of “holding Scotland to ransom.”

But as the source of raw materials for $8 billion per year worth of downstream manufacturing, Grangemouth is a site that the U.K. couldn’t afford to lose.

In the end, Unite caved and agreed to Ineos’s plan. Since then, the company has been proceeding at a breakneck pace. It has ordered eight ships that later this year will begin to carry ethane from Pennsylvania and the U.S. Gulf Coast to Grangemouth and an Ineos petrochemical plant in Rafnes, Norway. Ethane storage tanks are already under construction at both sites.

Ratcliffe would rather acquire shale gas locally than buy it from the U.S., but at present none is available. The gas is in the ground, but European policy-makers, citing environmental concerns, are more resistant to access it than their American counterparts are.

Nevertheless, Ratcliffe will try. Ineos announced plans in November to invest $1 billion to develop shale gas resources in the U.K. It has majority interests in two Scottish gas fields, where it will drill experimental wells. It has also hired veterans from the U.S. firm Mitchell Energy, which started the shale gas revolution in Texas a decade ago.

To try to smooth over resistance to shale, Ineos is pledging 6% of its shale revenues to local communities, an amount Ratcliffe reckons could total $4 billion.

But as he sweet-talks the locals, Ratcliffe has harsh words for Europe’s regulators. In a letter to European Commission President José Manuel Barroso last March, he warned that Europe needs energy policies aimed at being competitive, not just being green. Otherwise, chemical plants will continue to close. “It is not looking good for Europe,” he wrote. “We are rabbits caught in the headlights.”

Count on more such audacity from Ratcliffe in the years ahead as he pushes his iconoclastic strategy.